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How the Apple vs. BlackBerry Battle Could Affect Jabil Earnings

Jabil Circuit (NYSE: JBL) will release its quarterly report on Wednesday, and investors have bid up the company's shares substantially over the past several months in hopes of a renewal of growth in the contract-electronics industry. Yet two of its most important customers, BlackBerry (NASDAQ: BBRY) and Apple (NASDAQ: AAPL) , have had much different experiences in the industry, and their battle for mobile-device supremacy will have ramifications on Jabil earnings.

Many consumers mistakenly believe the companies whose names are on the electronic devices they buy manufacture those products themselves. But Apple, BlackBerry, and other major device makers often turn to companies such as Jabil to make certain key components for their products. Jabil has plenty of competitors willing to provide the same services, so the company has to hold its rivals at bay to keep its growth rates up. Let's take an early look at what's been happening with Jabil Circuit over the past quarter and what we're likely to see in its report.

Stats on Jabil Circuit

Analyst EPS Estimate

$0.54

Change From Year-Ago EPS

0%

Revenue Estimate

$4.52 billion

Change From Year-Ago Revenue

4.3%

Earnings Beats in Past 4 Quarters

2

Source: Yahoo! Finance.

Can Jabil earnings move up this quarter? Analysts in recent months have had mixed views on Jabil earnings, cutting $0.01 per share from their estimates for the quarter that ended in August but adding $0.03 per share to their projections for the 2014 fiscal year. The stock has been unabashedly positive in its view of the future, climbing 17% since mid-June.

Jabil started the quarter on somewhat questionable footing, as its report for the quarter ending in May included substantial restructuring costs that held net income to about half what it earned in the previous year's quarter. Sales rose 5%, topping expectations, but guidance for the most recent quarter was weaker than investors had hoped to see. Nevertheless, Jabil has benefited from higher hopes across the sector. Rival Flextronics has also seen shares soar, even though its earnings and revenue growth look like they won't hold up as well as Jabil's.

The big move for Jabil during the quarter was completion of its $665 million buyout of Nypro. Nypro makes custom plastics for the consumer electronics and health-care industries, and with Apple's iPhone 5c moving to a plastic case, some analysts speculated Jabil might supply the case, potentially using expertise from Nypro.

But one potential problem came earlier this month, when Apple said it was looking at claims of labor violations at a Jabil factory in China. Accusations by China Labor Watch included unpaid overtime, crowded dormitories, and short break times for meals.

More broadly, Jabil has to deal with the challenges its customers face. BlackBerry in particular has struggled recently, announcing late last week that revenue for its most-recent quarter would come in nearly 50% lower than investors had expected, leading to triple the net loss analysts were projecting as sales of new BlackBerry 10 devices didn't provide enough lift for the mobile-device maker. In addition, BlackBerry said it would lay off as much as 40% of its workforce in an effort to cut costs. Now that BlackBerry has now received a buyout offer to take the company private, Jabil's role in BlackBerry's new smartphones could be in jeopardy if BlackBerry makes major changes, and any weakness there could offset strength from the new Apple iPhone launch.

In the Jabil earnings report, watch to see whether the company gives any guidance on its key customer relationships. In its never-ending battle to keep Flextronics and other rivals at bay, Jabil must hope both Apple and BlackBerry can keep taking steps forward to promote their own businesses.

What's next for Jabil and Apple?Jabil relies on Apple for a good part of its business. But Apple has a history of cranking out revolutionary products... and then creatively destroying them with something better. Read about the future of Apple in the free report, "Apple Will Destroy Its Greatest Product." Can Apple really disrupt its own iPhones and iPads? Find out by clicking here.

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Dan Caplinger has been a contract writer for the Motley Fool since 2006. As the Fool's Director of Investment Planning, Dan oversees much of the personal-finance and investment-planning content published daily on Fool.com. With a background as an estate-planning attorney and independent financial consultant, Dan's articles are based on more than 20 years of experience from all angles of the financial world.
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